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Vol. VI, No. 19

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Vol. VI, No. 19

The House-Senate conference committee on the energy bill is scheduled to start taking up the big issues this week, and Chairman Billy Tauzin (R-La.) has said that he plans to finish negotiations on the compromise bill September 27.

The contentious issues still on the table include three global warming titles in the Senate version of H.R. 4, the Senate’s renewable portfolio standard for privately-owned electric utilities, differing versions of new CAFÉ (Combined Automobile Fuel Efficiency) standards, the Senate’s expanded ethanol mandate, and the House provision to allow oil exploration in Alaska’s Arctic National Wildlife Refuge.

Congressional staff members describe the White House role in the negotiations as largely passive. It is expected that after the conference committee finishes, Tauzin, Rep. John Dingell (D-Mich.), and Senators Jeff Bingaman and Frank Murkowski (R-Alaska) will meet behind closed doors to hammer out a deal that might be acceptable to both the administration and Senate Majority Leader Tom Daschle (D-S.D.).

It is unclear whether there will be time to bring such a deal to the House and Senate floors before Congress adjourns or recesses for the election campaign. The announced date for adjournment is October 11, but a lame duck session after the election is still possible.

New Jersey Scraps Emissions Trading

New Jersey’s emissions trading scheme is a failure and will be scrapped, according to Bradley Campbell, the state’s commissioner of environmental protection. The Open Market Trading program was implemented under former Governor Christie Todd Whitman.

The program awards transferable emission credits to companies that lower their emissions below the allowed limits. These credits can then be sold to other companies whose emissions exceed the limits. Whitman, who now heads the U.S. Environmental Protection Agency, is now pushing a national level version of the plan.

“Our review of the…program at the outset of the McGreevey administration has led me to conclude that the program has failed,” said Campbell in an August 13 letter to the U.S. EPA. “The program’s ostensible clean air benefits were limited by the failure to include safeguards to ensure that the program would in fact reduce emissions.”

Whitman defended her environmental record and the program. Spokesman Joe Martyak praised the program as a voluntary effort “designed to achieve air quality benefits earlier and at a lower cost than conventional approaches….The most important thing is…that, both as the governor as well as the administrator of EPA, she’s sought creative ways to reduce the air pollution out there” (Newark Star-Ledger, September 17, 2002).

Canada Says it Will Ratify, Oil Chiefs Attack

The Canadian government has announced that it will ratify the Kyoto Protocol, but will seek credit for reductions that aren’t allowed under the pact. Under Kyoto, Canada must reduce its emissions to six percent below 1990 levels, meaning that it must eliminate about 240 megatons of greenhouse gas emissions per year.

Canada will seek to claim credit for exporting energy from hydroelectric power and natural gas to the United States and elsewhere. Environment Minister David Anderson claims that Canada should be given credit since such exports would replace “dirty” coal power. This would account for as much as 29 percent of Canada’s Kyoto target (Associated Press, September 5, 2002).

Following the announcement, several heads of Canadian oil companies strongly criticized Prime Minister Jean Chretien for his decision. Gwyn Morgan, chief executive of EnCana Inc., North America’s largest independent energy company, wrote a strongly worded, eight-page letter to Chretien, which said that “signing the Kyoto Protocol would go down in history as one of the most damaging international agreements ever signed by a Canadian Prime Minister.”

Morgan argued that Kyoto’s “most severe impact would be on consumers, not producers of energy.… [b]ecause more than 80 percent of greenhouse gas emissions come from the consumption of energy rather than its production.” Morgan also warned, “Since EnCana operates in many countries in the world, we have greater flexibility than non-international companies to move our investment programs if growth is constrained here in Canada.”

Morgan also accused the government of believing in fantasy for making the argument that Kyoto would be good for the bottom line and represents an opportunity for businesses to restructure and create new goods and services. “Such a leap of faith is tantamount to believing in the tooth fairy,” he writes. He lambasted carbon trading schemes. “Just imagine the potential for Enron-like games that could be played when accounting for the purchase of emissions credits from places like Russia and other countries. And how could anyone convince Canadian voters that sending money to Russia was good for the Canadian or global economy?”

Tim Hearn, chief executive of Imperial Oil Ltd., told the audience at a Peters & Co. energy conference in Toronto that the agreement would be disastrous for Canada. “There’s absolutely no reason in this country why we can’t have good environmental management and … economic growth for the prosperity of all Canadians - my view is that Kyoto fails on both accounts,” Mr. Hearn said. “It’s somewhat incongruous to me that the federal government will end up going down a path that’s going to shrink our economy, transfer wealth out of the country and reduce jobs.”

An investor at the conference applauded Hearn’s strong words. “The industry has been too quiet on this issue,” he said. “It was about time someone stood up and really spoke out on Kyoto. We all want to help the environment, but this isn’t going to help anyone” (Financial Post, September 12, 2002).

Economics

New York Wind Farms a Bad Decision

In August, New York Governor George Pataki announced a $17 million aid package to four private companies to develop wind farms in various parts of the state. But, according to Glenn Schleede, president of Energy Market & Policy Analysis, New Yorkers should be wary of the environmental claims of wind power.

The New York Energy Plan estimates that the eight wind farms, with a combined 250 wind turbines, would produce approximately 900,000 kilo-watt hours (kWh) of electricity per year. But this is a drop in the bucket compared to the state’s total electricity demand. For example, this amount equals 58/100 of 1 percent of the total electricity imported into New York in 2000. It is only 15 percent of the energy that will be produced from a single gas-fired combined cycle plant that is scheduled to come online in Athens, NY in 2003.

The wind power industry often claims that “electricity generated by the wind turbines will displace on a kWh for kWh basis electricity that would be generated by fossil-fuel generating units and any associated emissions.” But that simply is not true, says Schleede. “Such claims are generally exaggerated. For example, they do not take into account that any fossil-fueled generating unit that is kept available to back up the intermittent electricity from the wind farm will be giving off emissions while it is running at less than peak efficiency or in ‘spinning reserve’ mode. Nor do they take into account the fact that other alternatives for reducing emissions are likely to be far more cost-effective.”

New Yorkers should also be aware that there is growing opposition to wind farms wherever they are proposed, in Europe, Australia and in nearly every state in the U.S., says Schleede. “Opposition is due to a variety of reasons including scenic and property value impairment, noise, bird kills, ‘flicker’ effects of spinning blades after sunrise and before sunset, potential safety hazards from blade and ice throws, interference with telecommunications, and higher costs of electricity.”

Full Expensing of Capital Will Reduce Carbon Intensity

Several climate-related initiatives pose a serious threat to America’s economic future, according to Marlo Lewis, a senior fellow at the Competitive Enterprise Institute. One such scheme is President Bush’s proposal to expand the Department of Energy’s Voluntary Reporting of Greenhouse Gases program to include the awarding of transferable carbon credits for voluntary greenhouse gas reductions.

Currently, the DOE program is a simple voluntary reporting program with no regulatory significance. But, says Lewis, writing for Tech Central Station (September 10, 2002), the addition of the awarding of credits to companies that report greenhouse gas reductions will corrupt the “politics of U.S. energy policy” and “grow the greenhouse lobby.”

Under Bush’s proposal, companies that begin to comply with Kyoto before it is ratified would be awarded credits that they could sell or use to offset future regulatory obligations. In the absence of a regulatory cap on carbon emissions, the credits are worthless. Only if Kyoto or a similar regulatory program were enacted would the credits yield dividends. “Credit-holders thus acquire cash incentives to support Kyoto, or lobby for its domestic equivalent,” says Lewis.

A credit scheme would be a zero-sum game where one company’s gain is another’s loss. Every credit awarded in the voluntary early action period is one that won’t be available during the mandatory period. Companies that don’t or can’t “volunteer” to reduce greenhouse gas emissions now will be penalized later under the mandatory cap, which means that the program isn’t really voluntary.

Lewis argues that the Bush administration should stop legitimizing climate alarmism by playing games within the Kyoto framework. Instead, it should embrace non-regulatory, pro-growth policies that would also have the side benefit of reducing carbon intensity. Bush should lower tax barriers to investment by allowing companies to “deduct from current-year revenues, the full cost of capital investment,” says Lewis. Replacing the current system of capital depreciation with full expensing for all types of capital investment would eliminate barriers to economically efficient capital turnover.

Science

Scientists Still Baffled by Surface- Atmosphere Discrepancy

A new study in the September 2002 issue of the Journal of Climate takes another look at the discrepancy in temperature trends between the surface, measured by ground-based thermometers, and the atmosphere (more specifically the troposphere), measured by satellite-borne instruments, and concludes that we don’t know why there is a discrepancy.

The temperature differential between the surface and the atmosphere is known as the lapse rate. From 1964 to 1979 the lapse rate decreased, meaning that surface and atmospheric temperatures were converging. However, beginning in 1980 the lapse rate began to increase and has continued to do so until the present time. Much of the winter-to-winter lapse rate variability in the high latitudes is dynamically induced, according to the study, but most of the change in lapse rate is over the lower latitudes or tropics.

The researchers, Gabriele C. Hegerl of Duke University and John M. Wallace of the University of Washington, attempted to account for this change by comparing the pattern to El Niño southern oscillation and other factors, but found that, “Trends in these patterns can account for only a small fraction of the observed trend in lapse rate.”

The researchers then ran the data through a climate model, both a control run and a run with greenhouse gas and aerosol forcings, which did a decent job of simulating short-term, monthly changes in lapse rate, but failed to simulate decadal scale changes. The model shows a tighter long-term coupling between the surface and atmospheric temperatures than is observed in nature. As this study shows, our understanding of heat transfer between the surface and atmosphere is still incomplete, and until this problem is resolved there is little hope that climate models can tell us anything about what the climate may be like in 10, 50 or 100 years.

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· The September 2002 issue of The Washington Monthly ran an article - reminiscent of the “ozone hole over Kennebunkport” flap under Bush I - about the possible effects of global warming on President George W. Bush’s ranch in Crawford, Texas.

The article begins with an account of British Prime Minister Tony Blair’s visit to the Bush ranch for a meeting with the “cowboy president.” President Bush’s plans to take Blair on a tour of the ranch were ruined by severe thunderstorms and golf-ball-sized hail. The article fingers global warming as the culprit. “But that possibility apparently seemed as remote to Bush as the likelihood that the storm was a sign from God,” it said.

There’s a good reason why this twaddle may not have crossed President Bush’s mind. It turns out that, according to data from the United States Historical Climatology Network, it’s getting cooler around Crawford. The nearest long-term temperature station to the Bush ranch is in Temple, Texas, 34 miles south of Crawford. It shows a cooling trend since 1890, and since 1920 the yearly average temperature has fallen by well over 2 degrees Celsius.

Announcements

· The Cooler Heads Coalition will hold a congressional and media briefing by Professor Richard S. Lindzen of MIT on September 30 from noon to 1:30 PM in Room 345 of the Cannon House Office Building. Lunch will be provided. Reservations are required. Those wishing to attend should e-mail their name, affiliation, and phone number to mebell@cei.org or telephone Myron Ebell at (202) 331-1010, ext. 216. Dr. Lindzen will be speaking “On the meaning of global warming claims.”